Despite a plethora of resources oriented at beginning farmers, there remains a significant gap in funding for new farms in the United States. It’s not easy to find grants or even loans to support a new farming endeavor. We offer some perspective here about why that’s the case, and how you can think about your funding journey as you start your farm.
A brief history lesson
Back in the 1980s, the farm sector in the United States went into a crisis. Farmland values tanked and commodity prices dropped due to excess supply. Farmers at the time had taken on high levels of debt, and many had to sell or foreclose their operations.
Since then, agricultural lending practices have changed to avoid the conditions that led to that precarious position. Before, agricultural lenders were comfortable making a loan based mostly off of a farmer’s asset base (the land). Today’s ag lenders look at both your asset base and your ability to generate cash flow. That means that there is much more scrutiny today on a prospective farmer’s previous track record in agriculture. This serves as a proxy for whether the farmer will 1) stick with this often grueling business, and 2) be able to generate the cash flow that will service the outstanding debt.
[If you’re interested in what happened in the 1980s and how we might avoid it, we highly recommend listening to Escaping 1980, a podcast series hosted by agricultural journalist, Sarah Mock.]
Hence, brand new farmers may struggle to get loans
If you already have some farm management experience under your belt, chances are good that you can get at least a small amount of financing from a lender to support your farm. However, if you’re truly just starting out, you will likely face some barriers that can be remedied by getting more experience.
The 5 C’s of Credit: Every farm loan officer today is well-versed in the “5 C’s of Credit.” This list includes five principles to consider when evaluating a loan candidate. They are:
- Character: what is the borrower’s reputation and standing in the local ag community?
- Capital: what is the borrower’s personal investment in the ag operation?
- Capacity: what is the borrower’s ability to repay the loan based on current income and debt?
- Collateral: are there property or large assets used to secure the loan?
- Conditions: what role do factors such as interest rate and purpose of the loan play?
As you can infer while scanning that list, new farms are at a disadvantage. If you don’t have much previous farming experience, you won’t be able to check the right boxes for the majority of those criteria.
Most of the current farm operating and ownership loans targeted at beginning farmers require at least one year of farm management experience.
And what about grants?
Unfortunately, there are not many grant programs that new farmers can access to help purchase land or equipment. Most grant programs offered by the federal government are oriented at supporting value-added marketing activities, innovative research or stewardship practices on existing farms. There are often requirements that the applicant has at least 1 year of sales or $1k in farm income to be competitive. And, grants cannot be used to cover the cost of equipment that has a value of over $5,000 or a useful life of more than 1 year.
That said, there may be some tax incentives, loan guarantees, and other programs available in your state that reduce the cost burden of starting a farm. A call to your state department of agriculture could point you in the right direction. You can also send us an email at firstname.lastname@example.org, and we’ll help you learn where to look for these opportunities.
So, what gives? How can a new farmer get started?
How to get started
If you’re just starting out, and have less than one year of previous farm management experience, we recommend starting out slowly. Look for opportunities to gain experience by apprenticing or serving as farm manager for an existing operation.
There may also be some programs that provide training and acreage for beginning farmers. One example is a program offered by the Liberty Prairie Foundation in Chicago, which helps beginning farmers access land and mentorship. There are many other programs like this one offered through the US today, thanks to future-oriented farm advocates and the Beginning Farmer/Rancher Development Program from USDA.
If you have a few years of farm management experience under your belt, you may be eligible for loans from the Farm Service Agency or Farm Credit. The challenge is deciding which aspects of your operation to finance right away! It can be tempting to invest in land as the first step, as it’s your most vital resource. However, land is expensive and hard to come by. We recommend renting land for the first few years, getting to know your local landscape to search for opportunities to purchase land in the future, and building your credit by taking out small operating loans to cover rental fees, costs of inputs and equipment.
Additional resources for new farms
Itching to get started developing your farm? We recommend looking into the following resources to kick start your journey:
- National Young Farmers Coalition (NYFC) provides community and resources for young farmers (those under 40 years of age).
- American Farmland Trust provides guidance on land access, including tools and frameworks to use when evaluating land.
- BeginningFarmers.Org has a host of resources you could dive into – for weeks and months!
- Kiva offers 0% interest loans for farmers who are willing to do some crowdfunding to raise capital.
- Review the list of previously awarded grantees of the Beginning Farmer Rancher Development Program to see if there are some existing projects to support you in your area.